‘Warehousing’ harder after court rules for panel

It has been a long time coming, but the Takeovers Panel’s ability to draw on the experience of its members and adopt a flexible, speedy approach to deal disputes has received the imprimatur of the Federal Court.

Lawyers say the decision will embolden the panel to act more decisively to prevent “warehousing", where friendly third parties, known as “associates", are used to build up secret stakes in listed companies.

The Corporations Act prevents more than 20 per cent of a company’s shares being held by associates during change-of-control transactions. But determining improper association is time-consuming and complex. This can conflict with the panel’s objective to make decisions quickly and not replicate court processes. Typically, the panel puts the onus on the parties alleging association to provide evidence for it in their submissions. Panel members then make inferences based on that evidence to determine whether an illegal association exists. The process can seem somewhat chaotic – but in a decision handed down last Friday, the court has endorsed it.

Allegations of improper association are a common issue for the panel. As the head of corporate HQ advisory at Minter Ellison, Bob Austin, observes on Austin Legal, to be published on Wednesday on AFR TV, the issue of association arose in about 75 per cent of the panel’s reported cases last year.

In one of these cases, the panel declared unacceptable circumstances after inferring share purchases made by Leanne Catelan, daughter of CMI director Raymond Catelan, had been made in consort with him, to consolidate control of the 4WD accessories maker. The shares were acquired through her private company, Tinkerbell Enterprises. Ms Catelan challenged the declaration in the Federal Court; the case was heard in September last year.

The judge said panel members could take into account their expertise and experience without having to set out in the reasons exactly what experience and expertise they were relying on. Mr Austin said this would be “music to the ears of panel members" and recognised that “the panel is a commercial body, and expected to act commercially".

The court also recognised that since the Takeovers Panel had been established by legislation that required it to conduct proceedings quickly and with little formality, the panel had not breached rules of natural justice by not holding an oral hearing or hearing from witnesses.

Mr Elliott noted, in an opinion article published on Capital online on Tuesday, that if the decision had gone the other way and the panel had been forced to use more court-like procedures, this “would have made it extremely difficult for the panel, which is composed of part-time members, to operate within the short time frames expected of it. Equally importantly, the challenge to the panel’s use of the expertise of its own members threatened to negate the whole purpose of appointing industry professionals to the panel in the first place."

Despite the court ruling, the issue of association will remain a complex one. Treasury is currently considering reforms to takeover laws including whether the presumption of an associate relationship can be made out of certain relationships, such as father and daughter. Such a presumption would provide added firepower to the panel to act decisively by putting the onus onto the alleged associates to show they were acting commercially and in a way that was not threatening to minority shareholders.